Hacker News Reader

Comment by xyzzy_plugh | Hacker News Reader

I don't get why we couldn't, as an example, get together and offer to buy the property for some non-token amount of money. Say I raise a million bucks to buy this film and submit formal outreach.

Can they still write it off as a loss? If there is a buyer standing by? This loophole is bizarre to reason about. Shouldn't you have to prove that something is worthless?

View on HN

They made a token attempt to sell it, but then rejected reasonable offers from Netflix, Amazon, and Paramount which were likely north of 40 million dollars at least.

The writeoff is reported to be $35-40m. Which I believe means that selling the film for $40m would be a big loss because that's taxable income whereas the writeoff is a straight up $40m net gain.

So they might need a $70-80m offer for it to be worthwhile.

a $35-40M write-off doesn't mean you save $35-40M in taxes. It means you don't have to pay taxes on $35-40M worth of income. If the corporate tax rate is 30%, you're only really saving $12M.

Doesn’t the write off just reduce your taxable earnings by $40million? Are you saying that their tax bill will actually go down by that much instead of some fraction of it?

The actual budget of the movie was higher than $40m. This is just the number that's been reported as the net value of the writeoff. But I have no real info, it's possible this has been reported vaguely, incorrectly, or based on rumor.

Sorry I was asking about how taxes worked. Your comment made it sound like they can subtract $40million off of their tax bill because they lost that much to this movie but maybe you didn't mean that. I imagine the write off means their revenue is considered to be $40 million less and so they're taxes on a lower number, meaning selling a movie for $40million could still be worth it.

I've seen people running with the assumption that it's a net $40m gain for the studio, but that could be incorrect.

IANAL, but the way this works, to my understanding, is basically that you turned a pile of money into an asset worth that pile of money, which in theory may slowly lose value over time, so they can either pull more out of the pile of money to promote/release/etc it and then maybe that will make it back and then some, or they can just justify writing the value off to 0 instantly by saying it was worthless and wouldn't sell, and then they can eat some taxes that would have been assessed against some other profitable venture.

So even if they released it for free with no ads tomorrow, it would not become worth $0 by doing that, even if they're not paying anything to release it, so they don't get the tax break, I think.

In theory, them selling the thing for $1M when it's worth $70M on paper should be a $69M loss to write off, but it's possible the burden of proving the value pre-sale changes given that someone was willing to buy it for that little?

Also ofc then you're paying taxes on that $1M sale or w/e, versus just the full writeoff.

From my understanding, taxes are not in any way a judgement of how you conduct your business. The IRS can't have an opinion on the fact that throwing away this movie makes absolutely no business sense. It's a property of the company that legally made expenditures to produce it. If the company decides to trash it, it could be the stupidest business move ever, but as long as the expenses filings are legal and proven, the books are fine. It's not even a loophole, really.

So, in the end, it's not about the system. It's just about how bad it gets when a creative company is run by soulless Excel people.

So, in the end, it’s not about the tax system, but about the market system and how it prioritizes soulless short term gains and monopolizing (while paying off governments to avoid anti-monopoly laws) rather than creativity and long term growth?

No. It's the tax system. If they couldn't turn this into a write-off, they'd go ahead and bring it to market.

They shouldn't be able to claim it as a write-off if they destroy their own good before they allow it to sell in the market.

They aren’t turning it into any more of a write off than it was before. It’s only the expenses being written off, which are ALWAYS written off because that's how business tax law works. So as long as it’s a business expense and not a hobby loss then it’s essentially no different than them releasing it and no one watching it.

Personally I believe any and all projects that fail to enter the marketplace should be given to the public domain instead, however I am also of the “extreme” notion that copyright should exist for only around 10 years.

But they don't have losses. They have expenses. They converted dollars into an asset, the movie.

Just because you spend $1 million to build a factory doesn't mean you get to run to the IRS and claim $1 million in losses. You still own the factory. Its up to you to run it to get your investment back.

If a disaster destroys the factory, it can be a writeoff. But yeah, you can't claim an intact factory as a loss and continue to use it as an asset.

Warner Brothers has made the business decision that the movie is not valuable. Releasing a bad product can do harm to a business, so the movie isn't an asset that can automatically be assumed to have positive value.

And there is a cost to releasing a movie, even if minimally marketed, there's opportunity cost if nothing else to getting it out the door.

Right or wrong, it's their decision to make that their investment has more value as a writeoff. They just can't write it off and then change their mind and decide to release it next year. (Unless they amend the return that declared it a writeoff.)

I still don't buy it. I don't like how they get to declare it has no positive value all by themselves.

If they claimed the disaster destroyed the factory wouldn't we go and check it was actually destroyed?

The IRS would definitely investigate fraud if that was suspected.

But this is a pure judgment call. The IRS will only be concerned that they don't use the movie as an asset, it's not their place to take a position on the business strategy. Tax laws can be pretty friendly to businesses. Whether we like it or not.

>Just because you spend $1 million to build a factory doesn't mean you get to run to the IRS and claim $1 million in losses. You still own the factory.

Right, that's why they're destroying it so it's not sitting on their balance sheet, and can claim it as a loss.

Why do they get to instantly claim it as a loss with no proof?

Can I just destroy the factory on a whim and then write it off too?

> Why do they get to instantly claim it as a loss with no proof?

Is your concern that they claim they destroyed the movie, but really kept a backup somewhere?

>Can I just destroy the factory on a whim and then write it off too?

I don't see why not. It's not any different than companies destroying inventory and claiming a write-off. The supreme court even affirmed it. See sibling comment:

https://news.ycombinator.com/item?id=39354276

When your house burns down, you get to tell your insurance that you suffered a loss.

When you burn your own house down, you don't.

I can only assume that WB's lawyers know things and there must be technicalitioes and discrepencies such that you CAN effectively do that with the IRS even though your would go to jail for trying that with insurance.

But in a sane world...they're burning their own asset, and they should be legally allowed to do that, but just not claim it as any sort of misfortune to any party, private insurance or public taxes.

> When your house burns down, you get to tell your insurance that you suffered a loss.

>When you burn your own house down, you don't.

That's not how it works at all. The reason why you can't collect your insurance policy when you burn your house down is because it specifically says it doesn't pay out if you intentionally set it on fire. No such clause exists for the tax system. Companies destroy inventory all the time to get write-offs on them.

Exactly. And rightfully so! The tax system can't be opinionated, or it would be extremely legally unstable. Unfortunately, for this reason, it's also a system that can't bake in any level of morality on the way legal tax loopholes are exploited, even when there's a clear moral downside in burning an asset that's the byproduct of intellect.

They’re not claiming insurance though. The question you should ask is whether burning your own house down is considered a loss on your tax returns? I don’t see why not.

As I understand it, there is no loophole here. They’re not getting any discount on their taxes for writing it off.

They’re just not going to make any money to be taxed on. If you paid them $1m for it, they’d have to pay tax on that million. And that’s all they’re trying to avoid.

Then why not release it for free? I suspect the poster above might be right that the loss is on the investment creating the thing not the income tax.

Personally I wager the film doesn’t actually exist and was a way to launder money out of the company. If all they wanted to do was use the expenses of the movie as expenses write-offs while not making any money it makes far more sense to leverage it in other ways, such as showing it for free.

> They’re just not going to make any money to be taxed on. If you paid them $1m for it, they’d have to pay tax on that million. And that’s all they’re trying to avoid.

That doesn't sound like a reasonable explanation. Yes they would have to pay tax, but they would still be left with majority of it.

If you offer to buy it for more than the tax benefit they would get otherwise, I'm sure they will accept

Reply on news.ycombinator.com